Michigan bills would regulate daily fantasy sports industry

FILE - In this Sept. 9, 2015, file photo, Len Don Diego, marketing manager for content at the DraftKings daily fantasy sports company, works at his station at the company's offices in Boston. Michigan state Sen. Curtis Hertel Jr., D-East Lansing, is sponsoring legislation to regulate and make legal daily fantasy sports games popularized by sites such as FanDuel and DraftKings. (AP Photo/Stephan Savoia, File)

Bipartisan bills that cleared a Senate committee 7-0 this past week would clarify that playing fantasy sports is not gambling, because it is a skill. A state license would be required, however, to operate the type of cash leagues popularized by industry leaders DraftKings and FanDuel.

In fantasy sports, people assemble a roster of professional athletes whose real-life performance statistics determine the winner — typically at season’s end. Many compete online with their friends for cash, others simply for pride.

But it is a booming business, too, with the explosion of “daily” games in which players put up money for a chance at a big payout.

Officials in some states have asserted that the daily paid contests are illegal, leaving the legal landscape unsettled and prompting a state-by-state legislative push by the industry. The Michigan Gaming Control Board has been studying the issue. The state attorney general’s office has not weighed in.

Sen. Curtis Hertel Jr., a sponsor of the legislation, said it “gets rid of the gray” for Michigan’s 1.6 million players and includes consumer protections to prevent employees of fantasy sports companies from playing after past questions about insider cheating. The commercial license would cost $5,000 initially and $1,000 each year after.

Game operators would have to try to keep anyone under age 18 from playing and could not offer games based on college, high school or youth sporting events. The companies would be required to let people restrict themselves from playing and to link to information about compulsive behavior — similarly to what casinos must provide.

“Really this is free-market legislation that protects citizens but lets the business of fantasy sports keep going here in Michigan,” said Hertel, an East Lansing Democrat. “We shouldn’t be penalizing people for basic entertainment. Really this is just another way to enjoy sports and the way we watch.”

The bills are backed by Boston-based DraftKings and New York-based FanDuel, whose joint lobbyist testified at a recent Senate hearing. Sixteen states have passed laws that are similar to what is being proposed in Michigan, mostly in the last two years, said Scott Ward, a lawyer for the companies.

The legislation, he said, would provide legal and business certainty to a growing industry.

“To be clear, Michigan residents who’ve been playing fantasy sports with their buddies for decades, maybe each of them probably throwing some money for a prize for the winner at the end of the season, won’t be subject to regulation under this legislation,” he said. “In fact, they won’t see any difference at all.”

Supporters of the bills say fantasy sports is a skill, not a game with a systemic element of chance like with traditional gambling. They also distinguish it from sports betting that is based more on the outcome of games and less so on individual statistics.

There is opposition to the legislation from the MGM Grand and Greektown casinos in Detroit. MGM lobbyist Tyrone Sanders said it supports the concept of fantasy sports but is concerned that the proposed consumer protections and penalty provisions are insufficient and that the industry would be overseen by the Department of Licensing and Regulatory Affairs.

“If fantasy sports under the bills … are not subject to taxation by the state as casino gaming is, we believe that some consideration should be given at a minimum to requiring fantasy sports companies to pay for the cost of their licensing and regulation,” Sanders said.

Seven states this year have enacted laws to regulate daily fantasy sports, including New Jersey, which also approved a tax on operators. Alabama lawmakers turned away a bill to allow the contests. So did North Carolina legislators, though the games are not expected to fade because they are played online and lawmakers said the law is ambiguous about whether fantasy meets the state’s definition of gambling.

A push to clear up the murky legal status of fantasy sports in Florida failed in the waning moments of the legislative session.

The Gaming Control Board is neutral on the Michigan legislation. But deputy director Dave Murley said the agency is best suited to oversee fantasy sports. He urged legislators to consider issues such as taxation and constitutional questions about expanded gambling. He also asked if daily fantasy sports sites should face stricter requirements to prohibit those under 18 from playing and if the companies should help pay for anti-addiction programming.